Legal cannabis: biggest threat or opportunity for drinks industry?

On the face of it the idea of legalised cannabis taking over the world and making alcoholic drinks obselete at the same time sounds like the plot of an episode of Black Mirror. But with what some observers are saying could be a $48 billion new drinks category up for grabs within a few years and is the world’s fastest growing consumer product category –  then it’s something we all need to be aware of.

Forget craft beer, forget cider, fancy cocktails or even the growing number of low or no-alcohol drinks. The biggest threat to the alcohol industry is not even a drink at all. It’s cannabis.

OK it might be a little way down the line before the UK considers legalising cannabis, but it is well worth your while taking a look at other parts of the world where legalised cannabis is now a very real live threat to the future of the drinks industry as we know it.

Particularly as it is arguably the number one issue facing the US drinks industry now that nine US states have legalised the sale of cannabis, on top of the 29 states that already allow it for medical reasons. But that’s nothing compared to what is happening north of the border in Canada where cannabis is set to be made legal across the whole country from the beginning of July.

Frenzied response 

It’s not surprisingly got the North American drinks industry into a bit of frenzy. With local analysts and pundits claiming it is the biggest threat to the sector – ever. Cowen, the US investment business, estimates, for example, that 80% of people lower their alcohol use when using cannabis.

The figures for how fast cannabis sales are set to rise are certainly enough to get drinks executives’ blood pressures racing. Analysts predict the legal cannabis market could be worth $24.5 billion by 2021, is set to grow at least 30% a year and was worth $9.7bn in 2017 (Arcview Market Research).

Euromonitor believes that growth could be four-fold. Euromontior analyst, Spiros Malandrakis, believes the cannabis industry “will soon become a much greater disruptor than the once ignored craft segment ever was”.

We will be able to see the impact that cannabis has on a domestic market drinks a little closer to home now that Germany has also announced it is allowing its use for medical purposes across the country.

Starbucks of cannabis 

Leading US cannabis players such as House of Jane, that produces a range of ‘cannabis-infused’ coffees and teas drinks, and claims it has the potential to become “the Starbucks of cannabis” believes there is a $48bn market to go after.

Much, though, will depend on future legislative decisions, both in the US and Canada, about what can be sold as ‘edible’ and ‘drinkable’ cannabis products.

It’s not as if the US drinks industry has had to face up to hard challenges before. But never before has it been threatened with a product that means less people are going to the bars and drinks stores they rely on to sell their brands.

So it’s no surprise to find it is already taking steps to fight back. Bartenders, for example, in the US states where there is now legalised cannabis are now introducing cannabis-based drinks of their customers. Or to be more accurate drinks made from cannabis extract, CBD, that can be bought in health food shops and does not have the so-called “psychoactive” properties found in a marijuana plant.

A Los Angeles cocktail bar, Gracias Madre in West Hollywood, has made a name for himself with its $20 cannabis-style cocktails list. This includes the aptly named Stony Negroni, made from gin, vermouth, Amaro Contratto Aperitivo, Port and CBD.

The cannabis-based drinks category 

It is also opening the door for drinks manufacturers to create their own cannabis-based drinks. Redwood Spirits, for example, has developed a cannabis-style vodka, Humboldt’s Finest, which is a spirit made with locally-grown hemp from Oregon and currently only on sale in California and Colorado.

Or there is a Colorado-based brewer, Dude’s Brews, with its Canna-Beer series, that claim to be “CBD-rich, cannabis-infused” beers.

David Paleschuck of Evergreen Herbal that produces a range of cannabis-based snack and drink products, like soft drinks brand, Cannabis Quencher, believes the category is set to go mainstream. “I see cannabis-infused beverages right next to beer and wine and other alcohol products in restaurants and other [establishments] where adults are served,” he says.

What’s more you can even personalise what sort of experience you are looking for on a night out. Far more so than you can with alcohol, claims Adam Sites, chief executive of Mirth Provisions, that produces its own range of marijuana-based drinks for sale in Washington State.

“Unlike alcohol, each strain produces a unique and distinct effect. So you can really dial in the experience you’re looking for,” he told CBC radio in Canada.

With potentially billions of dollars now available to new entrants to the legalised cannabis market it is inevitable that the drinks industry will be looking at all ways to get its share of the cake.

Creating a whole new drinks category  

Constellation Brands, the $40-plus billion US drinks giant, was the first alcohol company to move into the cannabis sector when it took a 9.9% minority stake in the $2 billion Canadian medical marijuana company Canopy Growth. The stake is said to be already worth about $191 million.

Noticeably Constellation’s chief executive, Rob Sands, said it was moving into the cannabis sector as he predicts it will be a “significant consumer category in the future”. “Our company’s success is the result of our focus on identifying early stage consumer trends, and this is another step in that direction,” he said when the deal was announced last October. That said it also has no plans to sell cannabis products in the US until it is legal across the country.

Constellation is also, no doubt, particularly excited about the fact the emerging major cannabis players don’t see existing cannabis users as their target market. Far from it.

Ben-David Sheppard, chief executive, of House of Jane, is quite clear who they expect to buy their products. “Our target audience is the mature person who hasn’t yet tried cannabis. This is a mature, responsible way to consume. Ninety per cent of the market who has not yet experienced cannabis is our target market.

Many other major drinks companies will be watching closely and no doubt planning their own strategies on how to cash in now on legalised cannabis-based beverages and related products.

Jane West, owner of Denver-based cannabis event production company, Edible Events, told Bloomberg recently that she believes legalised cannabis will help create a completely new drinks category in the coming 10 years. “Alcohol companies will create low alcohol, THC-infused products that taste like a Bourbon,” she claimed.

Healthy…but not as we not it

That ability to be able to offer consumers some sort of kick, but without the growing negative connotations surrounding alcohol could be where the real growth comes in cannabis-based drinks. They potentially offer a more healthier alternative to straight alcohol. That’s certainly what Canopy Growth’s chief executive, Bruce Linton, believes. He told US media on the back of the Constellation deal that: “Consumers are seeking something healthy, something not driven by sugars, not driven by alcohol.”

When it gets its chance Constellation will be looking to sell a full range of sodas, ready-to-drink coffee, fruit elixirs, and other “drinkable cannabis products that don’t contain alcohol”. It paints a very different future for the traditional alcoholic drinks industry.

For whilst on the one hand cannabis is a major threat to the traditional drinks industry, it also opens the door to a whole new market, and access to target consumers, that literally did not exist before.

Opportunity for Cannabis Drinks Expo

With so much to play for it’s not surprising that the threat – or opportunity – of legalised cannabis has spawned its own major trade event with the recent launch of Cannabis Drinks Expo in 2019.

The two-day event to be held in San Francisco in July 2019 is being billed as the first global event of this kind to tackle legalised cannabis. Whilst clearly legalised cannabis in North America will be top of the agenda, it will also be of interest to a host of other countries, particularly in South America, that are also looking at legalising cannabis – as well as those who just need to know what is going on in this new billion dollar industry.

It will also be an opportunity for the drinks and emerging cannabis industries to come together, share ideas, and look at ways they can potentially work together. As well as get on top of the legislative and political agendas that are helping to drive the legalised cannabis sector.

But the more you look at the issue, there is clearly much for both the drinks and cannabis industries to benefit from talking and potentially working together as they will ultimately be targeting the same consumer.

Which is no doubt the thinking of the Expo’s organisers, the Beverage Trade Network, the same US events and consultancy business behind this month’s forthcoming International Bulk Wine & Spirits Show in London and the separate London Wine Competition.

The Buyer will be working closely with the Cannabis Expo team in the coming months and helping explore this fascinating and crucial new potential market for the global drinks industry.

* If you would like to know more about the plans behind Cannabis Drinks Expo then you can register your interest here.

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